September 30, 2013

Airlines promise return to civility - for a fee, of course

The industry has discovered that passengers are willing to pay for such perks as delivery of their luggage and a day pass to the lounge.

By Scott Mayerowitz
The Associated Press

NEW YORK – Airlines are introducing a new bevy of fees, but this time passengers might actually like them.

click image to enlarge

Passengers check their luggage at the Delta counter at Hartsfield-Jackson Atlanta International Airport, in Atlanta last week. Delta customers have the new option to purchase an upgrade that includes a second bag to check, among other perks.

The Associated Press

Unlike the first generation of charges which dinged fliers for once-free services like checking a bag, these new fees promise a taste of the good life, or at least a more civil flight.

Extra legroom, early boarding and access to quiet lounges were just the beginning. Airlines are now renting Apple iPads preloaded with movies, selling hot first-class meals in coach and letting passengers pay to have an empty seat next to them. Once on the ground, they can skip baggage claim, having their luggage delivered directly to their home or office.

In the near future, airlines plan to go one step further, using massive amounts of personal data to customize new offers for each flier.

“We’ve moved from takeaways to enhancements,” says John F. Thomas of L.E.K. Consulting. “It’s all about personalizing the travel experience.”

Carriers have struggled to raise airfares enough to cover costs. Fees bring in more than $15 billion a year and are the reason the airlines are profitable. But the amount of money coming in from older charges like baggage and reservation change fees has tapered off. Revenue from bag fees in April, May and June fell 7 percent compared to the same period last year, according to figures released by the government Monday.

So now the airlines are selling new extras and copying marketing methods honed by retailers.

Technological upgrades allow airlines to sell products directly to passengers at booking, in follow-up emails as trips approach, at check-in and on mobile phones minutes before boarding. Delta Air Lines recently gave its flight attendants wireless devices, allowing them to sell passengers last-second upgrades to seats with more legroom.

And just like Amazon.com offers suggested readings based on each buyer’s past purchases, airlines soon will be able to use past behavior to target fliers.

“We have massive amounts of data,” says Delta CEO Richard Anderson. “We know who you are. We know what your history has been on the airline. We can customize our offerings.”

Other airlines are experimenting with tracking passengers throughout the airport. In the future, if somebody clears security hours before their flight, they might be offered a discounted day pass to the airline’s lounge on their phone.

Airlines have yet to find the right balance between being helpful and being creepy. So, for now, most of the data is being used to win back passengers after their flight is delayed or luggage is lost.

“We want to get back to a point where people feel like travel isn’t something to endure, but something they can enjoy,” says Bob Kupbens, a former Target executive and Delta’s current vice president of marketing and digital commerce.

Most passengers select flights based on the lowest base fare. The online travel industry plays up that price sensitivity with sites named CheapOair.com, CheapTickets.com and InsanelyCheapFlights.com.

When airlines try to raise fares, they are met with resistance.

“Customers are very quick to either change travel plans, or use another carrier or not travel at all,” says Jim Corridore, an airline analyst with Standard & Poor’s Capital IQ.

In the past three years, airlines have tried to hike fares 48 times, according to FareCompare.com. During 29 of those attempts, bookings fell enough that airlines abandoned the increase.

Most fares today don’t cover the cost of flying. While the average domestic roundtrip base fare has climbed 3 percent over the past decade to $361.95, when adjusted for inflation, the price of jet fuel has nearly tripled.

When oil prices spiked in 2008, airlines added checked baggage fees. Passengers still bought tickets on the base price and didn’t think about the extra expense until the day of travel.

(Continued on page 2)

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